A commonly used "learning-by-doing" economic analysis
(using a term known as the "Technology Factor") was
used to predict expected cost reductions as installed capacity
rises according to the following expression:

Cm

=

Cl x m(lnTf/ln2)

Where:

Cm

=

Cost of mth unit

Cl

=

Cost of first unit

Tf

=

Technology Factor

Typically, Tf for industrially processed systems
is 0.85-0.95. A low technology factor (~0.85) represents fast
learning with a resulting rapid fall in costs, a high Tf
(~0.95) represents a slower rate of cost reduction. Experience
has shown that over 20 years the wind energy industry has achieved
a Tf of 0.9-0.95. Wind is currently predicted to maintain
a Tf of ~0.95 with ~18GW of installed capacity to date
(the cost of energy has been falling steadily at 8-9 per cent
per annum over the last 10 years, and is predicted to continue
to fall at ~4-8 per cent per annum over the next decade).

For this analysis we have assumed the cost of the first unit
(Cl) is the first 25MW installation as described in
Section 3. We have assumed a total world-wide capacity of 2.5GW
(~15 per cent of current installed wind capacity) by 2010 installed
to the profile shown in Figure 1 (below) with major installation
commencing from 2007-08 once the technology gains credibility.
Upper and lower values for Tf of 0.90 and 0.95 and
discount rates of 8 per cent and 15 per cent were assumed. The
results are shown in Figure 2 (below) for installation to 2010.

A Tf of 0.90 to 0.95 is seen as conservative but
realistic. Wave energy has the potential for larger gains in power
capture efficiency through improvements in control strategies
than all other energy technologies. This is because of the fundamental
physics of waves and the harmonic nature of the input allowing
the dynamic response to be optimised. Conservatively, OPD have
estimated that this may lead to an increase in annual energy capture
of ~50 per cent in the long term.

6. Long-term cost of a 25MW installation

The analysis presented above was extended to a world-wide
installed capacity of 20GW (ie similar to current installed wind
capacity) by 2015 and 40GW (predicted installed wind by 2010)
by 2020, assuming a similar range of Tf and discount
rates, the results are as shown in Table 1 (above).

As a cross check a study was carried out to identify likely
long-term cost reductions and performance improvements on the
first 25MW wave-farm installation.

Cost reductions assumed were as follows:

 structure: 33 per cent reduction mainly due to
anticipated move to concrete;

 power systems: 25 per cent reduction due to design
optimisation and economies of scale;

 finishing/corrosion protection: 50 per cent reduction
due to move to concrete for structure;

 cabling costs: 33 per cent reduction due to design
optimisation, use of DC systems and specialist installation equipment;

 grid connection costs: no reduction assumed as
early systems will occupy best sites;

 installation costs: 33 per cent reduction due
to specialist equipment and techniques;

 insurance: significant reductions (50-75 per cent)
as confidence in the technology rises;